HP picks battle hardened executives for Cloud Wars

HP’s Board had three big problems that Mark Hurd created or that resulted when he left.
They were poorly positioned against Acadia, IBM, and Oracle because Hurd had forced out Nora Denzel (one of the best software executives in the business) and crippled the software unit that Carly Fiorina, Hurd’s predecessor had been building; the employees were close to open revolt and internal employee loyalty scores were not only historically low for HP they were the lowest in the industry; and Hurd was not a visionary or a builder [so] HP couldn’t articulate a vision anyway without a CEO.

I doubt any of us believed that HP could address more than two of these problems with a new CEO, and they didn’t really, they corrected them by hiring two CEOs: Leo Apotheker who effectively built SAP and Ray Lane who saved Oracle.

Let’s explore this.
Why Not Hire Internally?
If you accept that HP needed to build up software the only internal employee that HP had with enough experience to do that had been Nora Denzel and Hurd had forced her out years earlier. Ann Livermore might have been able to do it had she been in good health but she isn’t and really never has been a strong software player. All of the other CEOs have less software background and most have less tenure at HP as well.

Todd Bradley, who had been positioned as Mark Hurd’s heir, was just too much like Hurd and likely would have simply kept the course and HP needed to be on a new one.
Tim Cook: So Close
If the primary goal was to move HP’s stock value Tim Cook, Apple’s COO, would have been the best choice. However, someone leaked that he was a candidate and suspicions are that it might have been someone in HP who wanted the job and that knocked him out of the running.

Yet, he was more of a tactical choice because only a small part of HP is focused on Apple and client hardware where Cook would have been best. Ideally, he would have been an ideal replacement for Todd Bradley, but not to run HP overall because the focus was to position HP the company better against Oracle and the new IBM and not Apple.

Over the short term, HP investors would have liked this and it would have clearly hurt Apple but just as likely distracted HP from the bigger battle to be fought for Cloud Computing where more of the firm was engaged.
Most of the people I’ve known who have worked around Steve found the experience educational but have a deep personal dislike for the man because he tends to be not only very abusive but demeaning. So, had Tim not been outed, he might have gone.
Regardless he was taken of the table showcasing there is a lot of interesting and somewhat questionable behavior going on behind the scenes.
What Comes Next?
You don’t get a team like this and not build a software power. Resources in HP will be shifted to do this and I would expect to see an increase in R&D spending particularly as it relates to software as well. Both the PC division and the Printing and Imaging division are potential divestitures.

However, the PC division, because the competitors in the segment don’t have a client strategy and one of the fastest growing parts of “the Cloud” is client virtualization might, if repositioned actually give HP an advantage, albeit under different leadership (it is unusual for anyone closely connected to a fired CEO to remain long after the new CEO takes the job particularly if they were passed over for that same job).
Printing and imaging however is actually more valuable outside of HP than in it because outside of HP it can sell through Dell, Oracle, and IBM none of which are deeply interested in printing and inside it can’t. This suggests its potential revenue as an independent company could be between 10% and 30% higher and it isn’t strategic to the Cloud model.
The resulting cash could fund a major acquisition, say someone like SAP, who could close the software gap more quickly.
You would also expect the new leadership to focus on restoring employee loyalty but they will have difficulty with incentives because the financial analysts will be watching the cost line closely.

Nevertheless, new executives typically get a period where they can make adjustments with impunity. The market appears to be reacting to both the near term likelihood that this will result in adverse costs and the disappointment in Tim Cook not being hired.
Wrapping Up: Brilliant
To be clear I really didn’t think HP’s board was going to pull this off. Todd Bradley had backed them into a corner rather nicely and Tim Cook seemed too attractive in terms of near term stock benefits to pass up. Tim got torpedoed and they ended up with what could be a strategic dream team of executives that can lead both HP and its board into becoming a vastly stronger company than they have ever been before.

However, to get there they will incur some high tactical costs because they have to restructure fortunately these two executives have good reputations with regard to customer and employee loyalty. While they may not cater to financial analysts as strongly as Mark Hurd did, their tradeoff should lead to a stronger HP rather than a crippled one.

In the end that is far better for HP’s long term success and survival. I'm suddenly very impressed with HP's board.